In German cities, bombs had destroyed homes and workplaces. Rubble filled and blocked streets and sidewalks. Many people had no access to electricity or running water. Subway, streetcar, bus, and railroad transportation were nearly nonexistent. Food supplies were insufficient, and people actually died of starvation.
Those who use the phrase “zero hour” to describe this moment in history see it as a moment when the German people were starting over. The past had been destroyed and they had nothing. They had to rebuild not only physical infrastructure, but the society itself, out of the emptiness.
Other historians argue against using the term Stunde Null, pointing out that the Germans were greatly burdened by the past. They were not starting with a clean slate. The past was real and was inflicting further suffering on them.
From mid-May 1945 onward, Germany was under the military governorship of the four victorious Allies — The United States, Britain, France, and the USSR. Paradoxically, these governors, having defeated the Nazis, left Nazi policies in place. These policies cruelly oppressed the Germans after the war. For twelve years, from 1933 to 1945, the National Socialist government had brutalized the German people. With the Nazis defeated and gone, the vicious policies were left in place.
The people had hoped that the war’s end would bring an end to the persecution, but the Allies continued the same practices. The abusive practices of the Nazi government grew from its name: National Socialism. The Nazis had “nationalized” various industries, confiscating people’s property, and placing businesses under the control of the government. They had introduced aspects of socialism — eliminating the freedom of the marketplace — by controlling wages and prices, by dictating the quantity of products to be manufactured, and by crushing the people with high rates of taxation.
The Nazis occasionally violated their own principles — they presented themselves as saving people from the evils of communism and socialism, while implementing socialist policies — they occasionally privatized industries when it served their purposes, violating their own broad trend of nationalizing industries. But the net effect and overall trend of Nazi policy was to eliminate personal economic freedom and to eliminate political liberty, which amounted to eliminating social justice.
Those National Socialist policies were foundational to fascism, and to be expected from the Nazi party. It was, however, unexpected that the American, British, and French would continue those policies — the same genocidal policies against which they had waged a long and painful war.
Along with the Allied military governors, one German political party, the SPD, also sought the continuation of National Socialist economic policies. These policies were driving Germany down at accelerating rates into misery. Observers inside and outside of Germany feared that the nation would be consigned permanently to a third-world status, or that it would take more than a century to rebuild the country.
The great surprise began in an area known as the Bizone. At the war’s end, most German territory was divided and occupied by four victorious Allies. The Americans and the British coordinated their governance of their respective occupational zones, and so the name Bizone arose. The French, whose occupational zone was defined somewhat later, also joined, and sometimes the area is called the Trizone.
In the Bizone, an innovative economist named Ludwig Erhard saw the problem and proposed a solution. To be anti-Nazi and anti-fascist, he argued, one must do the opposite of what the National Socialists had done, as Lawrence White explains:
Fortunately for ordinary Germans, Erhard — who became director of the economic administration for the U.K.-U.S. occupation Bizone in April 1948 — thought otherwise. A currency reform that he helped to design was slated to replace the feeble old Reichsmark with the new Deutsche mark in all three Western zones on June 20. Without approval from the Allied military command, Erhard used the occasion to issue a sweeping decree abolishing most of the price controls and rationing directives. He later told friends that the American commander, Gen. Lucius Clay, phoned him when he heard about the decree and said: “Professor Erhard, my advisers tell me that you are making a big mistake.” Erhard replied, “So my advisers also tell me.”
Erhard’s mission was to undo what the Nazis had done. His conceptual program included lowering taxes, removing wage and price controls, privatizing industry, and the end of the “command economy.” A command economy is one in which the government dictates how many of each type of product will be manufactured.
The Soviets criticized Erhard’s views. The SPD criticized Erhard’s views. Some American economists criticized Erhard’s views. But Ludwig Erhard had been, prior to his job as economic advisor in the postwar era, a researcher in an economic think-tank, and had been an assertive member of the anti-Hitler underground resistance movement. He was unmoved by his critics. The policy he proposed was not in error, as Lawrence White reports:
It was not a big mistake. In the following weeks Erhard removed most of the Bizone’s remaining price controls, wage controls, allocation edicts and rationing directives. The effects of decontrol were dramatic.
By every metric, the German economy — i.e., the economy in the Bizone and Trizone — began to recover, and it recovered quicker than anyone thought possible. Wages rose. The standard of living rose. Unemployment fell. German industries rebuilt and modernized.
In mid-1945, Germany was starving, had no resources, and was living in primitive squalor. Within a decade, it had the largest, healthiest, and most powerful economy in Europe, and the second most powerful economy in the world.
The free market was the path to social justice. The laissez-faire policies which Erhard introduced opened the path to true democracy: a government of freely-elected representatives.
